Question

Mainline Produce Corporation acquired all the outstanding common stock of Iceberg Lettuce Corporation for $38,000,000 in cash. The book values and fair values of Iceberg’s assets and liabilities were as follows: - Book Value Fair Value Current assets $ 11,000,000 $ 14,000,000 Property, plant, and equipment 30,000,000 36,000,000 Other assets 3,000,000 4,000,000 Current liabilities 7,400,000 7,400,000 Long-term liabilities 12,600,000 11,600,000 Required: Calculate the amount paid for goodwill. (Enter your answer in millions (i.e. 5,000,000 should be entered as 5).)

Answer 1

Answer:

The amount paid for goodwill is $3,000,000

Explanation:

For computing the goodwill amount, first we have to find out the net assets value based on fair values which is shown below:

Net asset = Total assets - Total liabilities

where,

Total assets = Current assets + Property, plant, and equipment + Other assets

= $14,000,000 + $36,000,000 + $4,000,000

= $54,000,000

And, the total liabilities = Current liabilities + Long-term liabilities

                                      = $7,400,000 + $11,600,000

                                      = $19,000,000

Now put these values to the above formula

So, the value would be equal to

= $54,000,000 - $19,000,000

= $38,000,000

Now the goodwill would be

= Amount paid - Net assets

= $38,000,000 - $35,000,000

= $3,000,000